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Financial Competence, Risk Presentation and Retirement Portfolio Preferences

  • Hazel Bateman

    ()

    (Centre for Pensions and Superannuation and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

  • Christine Eckert

    (Centre for the Study of Choice, University of Technology Sydney)

  • John Geweke

    ()

    (Centre for the Study of Choice, University of Technology Sydney)

  • Jordan Louviere

    ()

    (Centre for the Study of Choice, University of Technology Sydney)

  • Stephen Satchell

    ()

    (Trinity College, University of Cambridge and University of Sydney)

  • Susan Thorp

    ()

    (Centre for the Study of Choice, University of Technology Sydney)

Financial regulators are weighing up the effectiveness of different templates for communicating investment risk to retirement savers since welfare depends on comprehension of risk information. We compare nine standard risk presentations using a discrete choice experiment where subjects choose between three retirement accounts. Switching between graphical or textual presentations, or between formats that emphasize benchmarks rather than return ranges or values at risk, affects predicted choices more than large changes in underlying risk. Innumerate individuals are more susceptible to presentation, and those with weak basic financial literacy are insensitive to increasing risk levels, regardless of presentation. Presentation effects are moderated but not eliminated as financial literacy improves.

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File URL: http://www.cepar.edu.au/media/62139/financial_competence_risk_presentation_and_retirement_portfolio_preferences__september_2011.pdf
File Function: First version, 2011
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Paper provided by ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales in its series Working Papers with number 201120.

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Length: 48 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:asb:wpaper:201120
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  1. Bateman, Hazel & Ebling, Christine & Geweke, John & Jordan, Louviere & Stephen, Satchell & Susan, Thorp, 2011. "Economic Rationality, Risk Presentation, and Retirement Portfolio Choice," MPRA Paper 29371, University Library of Munich, Germany.
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